This Should Not be News
By Arnold Kling
most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs. Lastly, we show non pecuniary benefits (being one’s own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision.
In my very first video for my econ class, I describe this phenomenon. I distinguish three types of entrepreneurs: the lifestyle entrepreneur, who wants the non-pecuniary benefits; the strip-mall entrepreneur, who wants to build wealth but does not seek to innovate; and the rock-star entrepreneur, who does want to innovate.